NAJIB RAZAK, PRIME MINISTER, MALAYSIA: What is required is real leadership here. Leadership that can provide a very, very comprehensive convincing solution to the market, not a patch up job.

(END VIDEO CLIP)

I'm John Defterios in for Richard Quest. This, of course, is QUEST MEANS BUSINESS.

Good evening.

News Corp. is giving up its bid for BSkyB. After all the scandals and all the political pressure, Rupert Murdoch's media group is forced to admit the game is up. The politicians and the public united in anger, it says it is just too difficult to push through a deal, leaving Murdoch's grand plan for his empire in tatters this evening. With the crisis abating investors have taken a bit of shares and BSkyB finished the day up, almost 2 percent.

Let's take a look at how they actually tracked. We have both sides of the story. BSkyB on one side, up nearly 2 percent on the day, at 705.5; although the stock is still down in terms of market cap turns, about $3 billion since it started. Look what is happening across the pond, on the Nasdaq, with News Corp. shares up 4.82 percent, trading, again, above $16 a share. But market cap still way down, since the beginning of this, just 10 days ago the stock is down in terms of market cap turns by $7 billion.

Felicia Taylor is outside the company's headquarters in New York City. We'll hear from her shortly, but first let's go outside the British houses of parliament and check in with Dan Rivers who has been following a very nasty battle and debate, over there.

Dan, I was trying to look for an analogy that describes this best. And it is almost a perfect storm if you will. You have phone hacking, meeting a deal deadline, meeting very nasty debate in parliament. It was just too much for News Corp today.

DAN RIVERS, CNN SENIOR INTERNATIONAL CORRESPONDENT: Yes, I have been trying to think of a way of explaining this as well. It is almost like there has been a big kind of lion that everyone has been terrified of, that suddenly been downed, and now they are all piling on, in the House of Commons, MP after MP standing up and lambasting and criticizing Rupert Murdoch, a figure that just a week ago, they wouldn't have dared to criticize. They were desperate to get as close as they possibly could to him, now everything seems to have changed.

It is a remarkable few days down here in Westminster. Seismic, is the way some people are talking about it down here.

David Cameron talking about the fact that it was just inappropriate for Rupert Murdoch to go ahead with this merger before he sorted out the phone hacking scandal. Here is what the prime minister said.

(BEGIN VIDEO CLIP)

DAVID CAMERON, PRIME MINISTER OF BRITAIN: I think this is the right decision. I've been saying that this company clearly needs to sort out the problems there are at News International, at the "News Of The World". That must be the priority, not takeovers, so the right decision. But also the right decision for the country, too; that we have now got get on with the work of a police investigation and the public inquiry that I've set up today.

(END VIDEO CLIP)

RIVERS: Gordon Brown has been on his feet, the former prime minister, in this debate that has been going on. The debate, incidentally, was called because they wanted to talk about the proposed takeover of BSkyB, by News Corp. Well, that is now not happening, but the debate went ahead anyway and it just seemed to be a good opportunity for lots of different politicians from both sides of the house to be heavily critical of News International, and Rupert Murdoch. Gordon Brown leading the charge, basically accusing News International of being in cahoots with criminals; here is what he said.

(BEGIN VIDEOTAPE)

GORDON BROWN, FORMER PRIME MINISTER, BRITAIN: Those at News International who took the freedom of the press as a license for abuse, who then cynically manipulated our support of that vital freedom as their justification, and then callously used the defense of a free press as the banner under which they marched in step, I say, with members of the criminal underworld. And it was this nexus, this criminal media nexus, claiming to be on the side of the law-abiding citizen, but in fact, standing side-by-side with criminals against our citizens.

(END VIDEO CLIP)

RIVERS: There will be a lot of cynics saying there is some real double standards going on here, though, because all of the people standing up and rounding on Rupert Murdoch now were the very ones who were desperate to court his favor and to keep his newspapers on the side, just a few months ago.

DEFTERIOS: Dan, there are some amazing quotes that are out there. This one from the prime minister's spokesman, "The business should focus on cleaning up the mess." Going back to your discussion about tough language. And how about the member of the coalition group, saying, "The sun is now setting on the Murdoch empire." Is there any belief here that this will die down in six months' time? Or do you think that the opposition party, the Labour Party is going to just go after Cameron, time and time again, for the next six months?

RIVERS: I think this is just going to be something that is going to grind and rumble on for months and months. And it will be seen in hindsight as a pivotal moment in U.K. politics with relation to the press. There are all sorts of prophecies down here that this is the end of Murdoch's influence over politics. I think that is massively overstating it. But certainly the days when Rupert Murdoch would have a prime minister fly half way around the world to see him, in Australia, or have a prime minister drop in on his chief executive Rebekah Brooks for a mince pie before Christmas, I think those days are firmly over.

DEFTERIOS: Yes, we'll see what sort of reforms it leads to for the tabloid press as well. That is Dan Rivers in Parliament Square.

We talked about the stock reaction today. Somewhat of a relief rally for investors of the two stocks involved in this whole saga. Let's go outside News Corp headquarters and check in with Felicia Taylor, who has been following the story.

So, I talked about $7 billion of market cap coming out, but it is almost a relief for those analysts who follow the company, to say this might be the time to go back into News Corp. with a share buyback.

FELICIA TAYLOR, CNN FINANCIAL CORRESPONDENT: Yes, there is no question about it, John. Actually, there was a Citigroup analyst, Jason Bazinet, who said, that this is really a buying opportunity. There has been such a discount in the stock, especially, since this debacle began it has lost about 13 percent. And today the stock is up about 3.5 percent, which is a pretty significant move in just one day's trading.

Bazinet says that there is really no reason to see any kind of permanent damage, even if this kind of news continues to plague other entities within his newspaper empire, he doesn't see that as a problem. He says the stock is too compelling to ignore. And here are some of the reasons why.

(BEGIN VIDEO CLIP)

JASON BAZINET, MEDIA ANALYST, CITIGROUP: News Corp., I want to say going back about two or three years, really began to build up cash on the balance sheet. It now sits at about $12 billion of cash. Now that is a lot of money earning zero percent on the income statement. And so the question now for investors of News Corp is what is management going to do with that cash? Now they announced yesterday that they are going to pursue a $5- billion buyback. That is going to help their earnings quite a bit.

But the important thing is that News Corp. probably generates about $4 billion of cash flow, a year. So really what they are saying is when, yesterday, when we thought the BSkyB deal was going to close a year from now, they were just saying, while we are generating this cash flow, we'll be buying back our stock. But we still have this outstanding question of what is going to happen to that $4 billion of cash on the balance sheet?

Now there's two options. They can go out and buy a lot more stock, in which case our earnings estimates would move up a lot, north of $2. Or they go out and they buy some other asset. Now, when you are earning zero percent on $12 billion, any asset you acquire is going to help your earnings. And so what you have is this sort, I'll call it a stealth asset, because on the balance sheet it is not generating income. And when the market has certainty about what is going to happen with that cash, earnings are moving up, and then when we know what the asset is the multiples should move up. That is why it is such a compelling time to buy News.

TAYLOR: Why-or what else would there be out there that would be attractive for Murdoch to pick up at this point? I mean, they don't have to go through with that buyback. It is announced over about a month, for just about a year.

BAZINET: Yeah.

TAYLOR: But they don't have to go through with it.

BAZINET: That's right. If I listen to the buy side, those who really have the checkbooks, what they are really concerned with is that there are a number of News Corp. assets that don't really have very powerful top line growth. The ones that really concern the Street the most are newspapers. You know, if you look at the BSkyB transaction and you put that into the income statement and you looked at the growth rate, that asset would have contributed to about half of News Corp.'s total growth. So it was really a transformative deal in terms of its contributions to the overall top line, and actually the bottom line for News Corp. So really News Corp., I think, if they don't end up buying back stock, and they end up pursuing another asset, they are going to be looking at something that has better top line characteristics than some of their legacy assets.

(END VIDEOTAPE)

TAYLOR: So, let's say that BSkyB is off the table permanently. We don't know that to be the case. Certainly, if somebody else steps in and makes another bid for it, that would allow Rupert Murdoch to come in and do the same thing and make another bid for it. But as far as Bazinet is concerned, none of the entities that he likes out there in terms of the cable arena are really even more attractive. And he has names like, Scripps Networks, that is part of-a smaller channel that has things like the Food Network and Home & Garden television. And those are quite big here in the United States. They also suggest AMT Networks, which is a (inaudible) of Cablevision. And they own things like Bravo, A&E and Lifetime. And again, those are quite popular in the United States. So there are quite a few options that Rupert Murdoch could look at, if indeed, he doesn't go back into the foray for BSkyB down the road, John.

DEFTERIOS: OK, Felecia Taylor outside News Corp. headquarters. Quite interesting how to fill at $1.6 billion hole, but the analysts are looking toward the United States to fill that hole.

Well, this scandal could blow across the Atlantic with reports that 9/11 victims may have been targeted by News International reporters. Now a U.S. senator wants those allegations to be investigated further. Brian Todd asked Jay Rockefeller what he is planning to do.

(BEGIN VIDEO CLIP)

SEN. JAY ROCKEFELLER, (D) WEST VIRGINIA: We have jurisdiction over this whole matter unless it comes to the fact that there are criminal elements involved, which I certainly don't rule out. In which case the Judiciary Committee takes responsibility. You know that the Department of Justice and all kinds of other federal agencies are going to be going after this very hard. And we will, too. I mean, this is a-it's a-it's really repugnant, you know, that one man can control so many. I mean, people in the parliament, I watched the parliamentary debate on television. They were talking about how they control the Labour Party, but when they go out, they control the Conservative Party. So, it is all about that. And that is bad for the world, it is certainly bad for America. And we have enough problems getting objective media.

BRIAN TODD, CNN CORRESPONDENT: Do you have specific information that Americans, that 9/11 victims had their phones hacked?

Well, it has been a spectacular collapse. Over the past 10 days, just 10 days alone, later in the program we'll look back at how the dominoes fell and what Rupert Murdoch may do next. That is with Jim Boulden.

When we come back, now, downgrades and outrage in Europe. There is a credibility crisis in Athens and Dublin tonight, and EU leaders are getting a lot of the blame.

(COMMERCIAL BREAK)

DEFTERIOS: Pressure is mounting on Europe's leaders as Greece's credibility crisis continues. The rating agency Fitch has downgraded Greek public debt to triple C, one notch above its very lowest rating. It brings it into line with the grade assigned to Greece by Standard & Poor's last month. Fitch says the new grade represents the lack of credible funding package from the European Union and the International Monetary Fund.

While Ireland also says its junk rating is Europe's problem and is putting pressure on the bloc's leaders. Let's get an update on what they had to say today. The ratings agency moved it down to Ba1 for Moody's; this, despite recognition that Ireland is on track to meet its deficit cutting targets. Prime Minister Edna Kenny, quote, said that "Moody's problem is not with Ireland. Ireland's problem is with Europe" right now. He said it is time for EU leaders to grasp the nettle of the challenge. There is talk of an emergency meeting this Friday, but so far there are no firm plans made just yet.

The outward signs of crisis not so obvious today. Right now the euro is gaining quite a bit of ground after three days of losses, it is trading at 1.4161. As you know, earlier in the week it broke the 140 level. But you can still feel the underlying distress in the marketplace overall. Look at the price of gold yet again, up $16.75 to $1,584 an ounce. Extraordinary, isn't it?

The immediate pressure on Italy is easing. It's borrowing costs are falling tonight ahead of another debt auction due, this time on Thursday. And the ratings agency Fitch says it is not facing a downgrade anytime soon, some relief for Italy. It is a welcome relief from the high anxiety which caused markets to tumble earlier in the week.

Nina Dos Santos has been speaking with the governor of Italy's central bank, the man who is going to be taking Jean-Claude Trichet's job, Mario Draghi. She joins me live from a beautiful skyline in Rome.

Nina, is quite interesting. All the attention shifts to Italy. Italy almost gets shock therapy and wakes up and all of a sudden the market is saying, look, I think they go the message.

NINA DOS SANTOS, CNN INTERNATIONAL CORRESPONDENT: Yes, we are talking about a country here, John, that has overspent by over $1 trillion. And that has a lot of people worried that if Italy does become the fourth Eurozone nation to need a bailout, it could be just too big to bailout. And one man who, as you quite rightfully said, John, is going to be taking the helm of this crisis, at a pivotal time is Mr. Mari Draghi. He is currently the governor of the Bank of Italy, but he is also going to be taking over from Jean-Claude Trichet at the ECB in November. I asked him about what he would do to solve the debt crisis, and here is what he had to say.

(BEGIN VIDEO CLIP)

MARIO DRAGHI, GOVERNOR, BANK OF ITALY: Well, I think there is no-there is no credible alternative to a determined European action, of the sort that leaders are discussing, to credible fiscal consolidation in the various countries and to structural reforms that could revamp growth, especially in the weakest part of the area.

(END VIDEO CLIP)

DOS SANTOS: Now, cutting through the kind of technological jargon, John, what Mario Draghi was actually saying there is that he was repeating a message that he gave in perhaps slightly stronger terms to a meeting of Italian bankers at their annual gathering, going on right here in Rome, earlier today. He was saying that the solvency of Eurozone nations shouldn't be taken for granted. Read through the lines what you will, but I take that as a message, perhaps, John, that the Eurozone and the ECB and also the IMF will not continue to endlessly bail out members of the 17- nation bloc.

DEFTERIOS: This doesn't solve the problem, Nina, of the growth challenge for Italy. They are trying to take a budget deficit of 9 percent of GDP to zero by 2014. Ambitious target if you are growing less than 1 percent. And this is extraordinarily difficult, is it not?

DOS SANTOS: It is indeed. And it is also extremely difficult to service the kind of debt that Italy has, worth 120 percent of its total GDP. Well, of course, you have got a very aging population, and one of the lowest birthrates anywhere in the world.

Now, a lot of people have been very worried, John. As you were quite rightfully saying, about whether Italy, each time it needs to go to the bond markets will have its hand forced. As you were saying earlier on in the week, on Tuesday, when it had a bond auction, yields reached about 6 percent for that particular sale. And then, of course, the waters will be tested tomorrow with another bond auction. I asked the general manager of Italy's largest bank today, Roberto Nicastro, just how worried he was about this. Take a listen.

(BEGIN VIDEO CLIP)

ROBERTO NICASTRO, GENERAL MANAGER, UNICREDIT: Now, clearly, everybody wants to see a strengthening of the maneuver, which is something which something Mr. Tremonti just announced today. And once again, that is one measure. At the same time it is also important to look at the major (inaudible) once again. More than that, a total net financial wealth per for Italian households, that is 23 percent. It is a very low number.

(END VIDEO CLIP)

DOS SANTOS: Well, one of the interesting things that you wouldn't have seen there is that I asked Roberto Nicastro no less than three times whether Italy would default. Each time he shook his head in total denial. He said, no, it is not a scenario that I envisage happening. So, here in Rome, it seems as though the politicians and the businessmen, and also the bankers, are very keen to have a show of force, show of unity, to get these reforms through, John.

DEFTERIOS: sounds like they knocked off to Piazza (inaudible) with that sort of statement of confidence, huh?

(LAUGHTER)

Nina Dos Santos, joining us tonight from Rome.

Well that is the Italian story. The Greek downgrade comes out on the day the IMF cut its outlook for the Greek economy. The IMF said, Greece must stick to its austerity program despite a deeper recession than previously forecast.

Giorgio Questa is a professor at the London Cass Business School. He joins me now to look at basically, Southern Europe, plus Ireland, because it is getting so nasty.

It is nice to have you on the program.

It is nice to be here.

DEFTERIOS: They are saying, the IMF today, that Greece is going to contract by 3.8 percent, with a debt to GDP soaring, an estimated 1.57 this year. That is a 172 percent.

This is too steep of a hill to climb. That is the reality.

GIORGIO QUESTA, PROFESSOR, LONDON CASS BUSINESS SCHOOL: Yes. Well, the point is that Greece is admitted in the euro, in a moment of over optimism around the world. I mean, it was a moment when people had forgotten about risk, in every factor. I mean, this is also behind the crisis in '78, '79- in 2008, 2009.

DEFTERIOS: And let's be honest, they also let the Greeks and the Italians and the Spaniards run their own books and report those in to the ECB. That was a fundamental flaw, you would agree with?

QUESTA: Well, up to a point. I mean, this is what Draghi was saying yesterday, I think. That the rating of a country has very little to do with currencies. It has to do with (inaudible). In the United States of America, they've got one currency, one language, one federal government, but there are some states which are in very bad shape, more or less like Greece. And then there is the whole country, which now, of course, is a political fight about the ceiling on debt, or whatever.

So, saying that you have one currency does not mean that you are liable. I mean, were companies going bankrupt in Germany with the deutsche mark.

DEFTERIOS: Right.

QUESTA: Or a regional-

DEFTERIOS: It is not a foolproof solution to Europe's problems right now. What has intensified here is the lack of cohesiveness by European leaders and it is coming from the outside, we'll hear from the prime minister of Malaysia in the next block of this program. It is coming right across the board. What should they be doing right now, Giorgio.

QUESTA: Well, it is very difficult because all of this area is extremely complicated. And by the way economical analysis does not really very good tools for these exceptional bumps on the road. So we are all a little bit in the dark.

But one thing which is obviously felt is the problem of moral (inaudible). So how do you bail out say, Greece? Do you bailout the regional people who were lending at the lowest spread?

DEFTERIOS: Right.

QUESTA: Or do you bail out, also, for example, a hedge fund that has bought at you know 50, 60 cents on the dollar.

DEFTERIOS: So you should be selective with the bailouts is what you are saying?

QUESTA: Well, in otherwise you are encouraging very wise preparation for the future. This is something, closer from an ethical point of view, it is behind a lot of things.

DEFTERIOS: Yes, very quickly, because we are out of time, the stress test? Is there going to be a shock on Friday when these all come out?

QUESTA: Well, it all depends from bank to bank. But there are some banks that found it very nice to lend to Greece at a very nice spread, with the idea of that maybe they would be bailed out. Yes, it could be a shock for somebody.

DEFTERIOS: Didn't mean to cut you off, we are just a bit tight on time. Nice to have you.

QUESTA: Thanks.

DEFTERIOS: Professor Giorgio Questa, of Cass Business School.

Europe's debt crisis needs real leadership. That is what Malaysia's prime minister told me in an exclusive interview. We'll bring that to you next, right here on QUEST MEANS BUSINESS.

(COMMERCIAL BREAK)

DEFTERIOS: Well, it is not just the Eurozone, and the U.S. paying close attention to their respective debt debacles. Export lead economies like Malaysia are also watching every move. In Malaysia's case here is why: The Southeast Asian nation is a major export market for the U.S. and trade going the other way is lucrative for Kuala Lumpur. Malaysia sent $26 billion worth of goods to America last year alone.

It is also a win-win scenario for trade with Europe, with the Eurozone importing about $30 billion worth of Malaysian goods last year. Kuala Lumpur is also hoping to ink a free trade agreement with the EU next year.

Malaysia's prime minister told me that goal is achievable depending on market access and negotiations in that time frame. Mr. Najib Razak is in the U.K. to talk about cementing economic ties with Britain. I caught up with him here in London, earlier today, for an exclusive interview. And I started by asking what he's looking for, from Europe, on debt.

(BEGIN VIDEOTAPE)

NAJIB RAZAK, PRIME MINISTER, MALAYSIA: The whole situation in Europe is of global concern. What we like to see is a European solution. I think what is required is real leadership here. Leadership that can provide a very, very comprehensive convincing solution to the market, not a patch up job; not, you know, something that you do to rectify small problems.

DEFTERIOS: It is fascinating if you look at the same level of trade with the United States, Malaysian exports $26 billion to the U.S. in 2010, but a similar debt scenario, a $14 trillion debt mountain. Have you ever seen such a gulf between Democrats and Republicans, which is hindering, not the raising of the debt ceiling, only, but a real solution to the long-term debt.

RAZAK: There is a deep divide between Republicans and Democrats and our sense is that they will raise the debt ceiling, come the deadline, but a solution will be, you know, a lot of prostrating, a lot of compromise will take place. And it is not really the kind of solution that gives you a sense of direction, clarity of direction, and an effective long-term solution that is required.

DEFTERIOS: You had growth of better than 7 percent in 2010. Projections of 5 to 5.5 percent. Do the debt challenges in Europe and the U.S. threaten that target for 2011?

RAZAK: Put it this way, if nothing unforeseen happens, we should be able to get 5 or 6 percent, between 5 and 6 percent. But there are concerns. There are uncertainties. You know, things could happen that you don't expect. But barring something unforeseen, we should be able to get 5 to 6 percent.

DEFTERIOS: We have seen a bursting (ph) movement in Malaysia this last week, and some 20,000 protestors under the umbrella of electoral reforms. But what is really behind this? This is a generational gap? I mean, why such a high level of protest?

RAZAK: Well, John, it is basically politics. Because there is democracy in Malaysia. And we are committed towards electoral reform. And it will come up to see that we are all for fair and clean elections. And as you know, the last general election, you know, the ruling party lost five states. And were deprived of two-thirds majority.

DEFTERIOS: So five of 13 states overall.

RAZAK: Five of 13 states and not a fair, clean election. We wouldn't have lost five states. But we are committed to making better.

DEFTERIOS: Some would say you had 1,600 arrests of some 20,000 protestors. Are you satisfied with the security response to that particular round of protests, yourself?

RAZAK: It was quite mild, you know, because-although they were taken in, but they were released after eight hours and they were treated very well. There was no undue use of force. And, you know, the demonstrators were dispersed using minimum force.

DEFTERIOS: How does the new economic model fit into this, Prime Minister? You have a per capita income of around $9,000. You have aspirations by 2020 to get it to at least $15,000. Does that play into this whole effort?

RAZAK: We must be focused in terms of what we need to do. I am very confident, because we have got very, very concrete plans, you know, to get there. This is not something which is quite macro, or quite abstract. It is something that is very, very specific. We have the numbers, we have the projects, we have the type of investment, and we have the number of jobs we want to create. And all of these things are for real.

(END VIDEOTAPE)

DEFTERIOS: Once again, the Malaysian Prime Minister Najib Razak.

The U.S. debt deadlock is nearing a critical mass and the man who runs the Fed has something to say about it. Ben Bernanke, the debt crisis and economic stimulus, all ahead on QUEST MEANS BUSINESS.

(COMMERCIAL BREAK)

DEFTERIOS: Welcome back.

I'm John Defterios.

And you're watching QUEST MEANS BUSINESS.

Here are your headlines.

British politicians are welcoming Rupert Murdoch's decision to drop his bid for satellite broadcaster, BSkyB. Prime Minister David Cameron said it was the right decision for both the country and Murdoch's media company long- term.

It was the latest twist in the phone hacking scandal that has engulfed Murdoch's British newspapers.

Burning debris and walking wounded in the streets -- Mumbai's evening rush hour was turned into a nightmare when improvised bombs exploded in three crowded areas. At least 21 people were killed and more than 100 are hurt. India's prime minister, Manmohan Singh, is asking the country to remain calm and united.

Libyan rebel leader Mahmoud Jibril is downplaying allegations by Human Rights Watch that opposition fighters have been burning homes, looting stores and beating civilians suspected of supporting Moammar Gadhafi. Jibril says there were a few incidents of abuse early on, but they have since stopped.

Afghan President Hamid Karzai mourns at the funeral for his half-brother, Ahmed Wali Karzai. New details are emerging about that killing. A member of the Kandahar Provincial Council tells CNN the shooter was Sardar Mohammad, a guard who had worked eight years for Ahmed Wali Karzai.

Tonight, America's top banker says he's open to another round of stimulus for the U.S. economy. Federal Reserve chief Ben Bernanke is on Capitol Hill testifying before U.S. lawmakers. He says the Fed is ready to take more action if the American economy looks in danger of stalling.

(BEGIN VIDEO CLIP)

BEN BERNANKE, FEDERAL RESERVE CHAIRMAN: Given the range of uncertainties about the strength of the recovery and prospects for inflation over the medium-term, the Federal Reserve remains prepared to respond should economic developments indicate that an adjustment in the stance of monetary policy would be appropriate.

On the one hand, the possibility remains that the recent economic weakness may prove more persistent than expected and that deflationary risks might reemerge, implying a need for additional policy support.

Even with the federal funds rate close to zero, we have a number of ways in which we could act to ease financial conditions further.

One option would be to provide more explicit guidance about the period over which the federal funds rate and the balance sheet would remain at their current levels.

Another approach would be to initiate more securities purchases or to increase the average maturity of our holdings.

(END VIDEO CLIP)

DEFTERIOS: That's pretty clear language from Ben Bernanke. That -- those words actually sparked a rally on Wall Street, snapping a three day losing streak.

Let's go out to the New York Stock Exchange and check in with Alison Kosik, who has the details on why people read that so positively. He's basically saying I'm on the side of the Street, if need be. I'll jump in front of that bus, is he not?

ALISON KOSIK, CNN BUSINESS CORRESPONDENT: Yes, he -- he definitely did. And you know what caught investors' ear, John, is that the Fed chief went into more detail than he has in the past, you know, outlining the two possible situations related to monetary stimulus. One, if the economy improves more than expected, then it would require tighter policy, meaning a hike in interest rates. And another where you'd see weakness persist and then the economy would require more stimulus.

So it seems that, as far as this rally goes, investors really are latching onto that kind of door opening for more QE, more quantitative easing. Because Fed Chairman Ben Bernanke, he's not totally ruling a QE3 out. You know, many on Wall Street have been nervous about this stop path (ph), that the Fed keeps calling it. You know, it calls it temporary. But, you know, investors are kind of concerned that this could be something more long- term. So this pledge to give more stimulus if needed is really helping to comfort many who were nervous.

But then, on the other hand, I talked with other traders who said, you know what, we're realistic. Bernanke will only provide a QE3 if there are signs in the economy of deflation. Of course, everyone says, listen, we don't want to see deflation. And the fact is, many don't expect to see that any time soon. So in that way, many traders say you know what, QE3 may be on the table. But they don't really see him actually pushing it through. And that's why we are seeing stocks off their highs today. Still higher, though, the Dow up 83, though we did see is as high as up 150 points today -- John.

DEFTERIOS: OK. Alison Kosik at the New York Stock Exchange.

Well, Ben Bernanke has also been warning U.S. lawmakers since February, raise the U.S. debt ceiling by August 2nd or face, quote, unquote, "catastrophic economic fallout."

President Barack Obama and Congressional Republicans are holding a fourth straight day of talks. Sharp differences remain over how to clean up America's financial mess, of course. A Republican Senate leader has proposed three short-term increases in the amount that government can borrow. But right now, the White House is not keen on that plan.

(BEGIN VIDEO CLIP)

JAY CARNEY, WHITE HOUSE PRESS SECRETARY: This is a fall back backup option. It's not the preferred option. We believe the American people epxess -- expect us to do something about reducing spending and getting our deficits and debts under control.

The president has made himself -- made it very clear that he is willing to compromise to do that, to take difficult steps, make difficult choices, take heat from his party, as necessary, to achieve something that the American people expect him to achieve and expect their leaders in Washington to achieve.

So the -- the -- what I think the president made clear is that we are the United States of America; we are not -- we should not be engaged in, you know, raising every six weeks, eight weeks, three months, six months a question about whether or not we're going to meet our obligations.

(END VIDEO CLIP)

DEFTERIOS: That's for sure. Everybody is watching very closely about what's transpiring in Washington right now.

Let's get more analysis.

David Mann is the chief U.S. economist from Standard Chartered Bank.

And he joins us tonight.

It's quite interesting what Ben Bernanke had to say. Most didn't think he would come that early into the process, David, to say, look, I'm standing by -- if necessary, we'll jump in.

Are you surprised on the clarity of his comments?

DAVID MANN, CHIEF U.S. ECONOMIST, STANDARD CHARTERED: Well, I think it's absolutely right that it would always have been true that if things had gone that badly wrong and if we head toward worrying about deflation again, that the Fed would jump in. So the fact that he has been so explicit in that is something that's been dragging or -- or attracting the market's attention today.

It was very clear, though, near the end of his testimony, that he -- while he did mention that, as you mentioned, he also talked about the exit policy and gave more details on that, too.

But I think all of this is really just an effort to boost the amount of transparency at a time when there are so many different moving parts and so much uncertainty over exactly what's coming.

And I think the key thing, really, is going to be just how much and -- and how soon we actually get that turnaround to a better pace of economic growth than the just around 2 percent pace that we have had in Q1 and most likely have also had in Q2.

DEFTERIOS: It's really difficult to get a recovery when you have people unemployed and the job creation of 18,000 jobs in the -- in the last month. Housing prices do not look like they're stabilizing just yet. Very heavy state government debt.

So what is your prognosis for the rest of 2011?

And can you forecast out to 2012 for us?

MANN: Yes, well, our full year forecast is around 2.5 percent. Next year, we think we can be above 3 percent, maybe around 3.4. I think you mentioned unemployment. That's going to be the really big key swing factor here. And not just the actual unemployment rate, which is still alarmingly high, at 9.2 percent, but also the incredibly low participation rate, which has just continued to remain down near the lows even through this entire cycle.

So that shows us even more people who have given up. And that shows through even from Bernanke's testimony today, when he was talking about the fact that a small fraction of the total amount, only about an eighth or more of the amount of jobs lost since the recession began, have actually been regained. And that is unusual in any post-war recession and then recovery.

So given that sort of weakness, I think that the risk to our forecasts, even with only around a 2.5 growth rate view that we've had in -- in place since April of this year, is that it could be even softer. It could take even longer for the recovery to come through. And the recovery stays very sluggish because of weak employment numbers and also, as you mentioned, the housing market. That is critical, as well. You can have some positive wealth effect coming through from, for example, growth in the stock markets, but that isn't necessarily something that is as widespread in terms of the impact on the wealth effect and not necessarily as long- lasting if you don't also have some good growth in an -- in jobs and spending in the broader economy.

So until we see that, we're still going to be on the -- on the weaker end of expectations for growth.

DEFTERIOS: One final question here.

Would you be raising taxes or at least take away the previous tax cuts that were put in by the Bush administration at the high end right now?

What's more important, reducing the debt, reducing the budget deficit or trying to sustain the growth with tax levels where they are?

MANN: Well, I think at the moment, the most important thing is to keep the recovery, the still relatively weak recovery, on track and to be going for any severe fiscal tightening at this point would be awkward timing, firstly, ahead of elections next year, the presidential election in 2012. But also, given the sort of weaker numbers we've been getting, this would not be the right time. I think committing to major cuts going forward, that makes sense. But from 2013 onwards, having some major fiscal retrenchment would help maintain credibility in the bond market about the willingness of the U.S. to actually pay its debts.

But to do it quickly and aggressively doesn't make sense at this stage.

DEFTERIOS: OK.

Nice to see you again.

David Mann is the chief U.S. economist for Standard Chartered Bank, joining us from New York.

"Inspiration is easy and unconventional is good" -- the words of a man who wants to be India's most fashionable global brand. Meet him on Breaking the Mold next, right here on QUEST MEANS BUSINESS.

Stay with us.

(COMMERCIAL BREAK)

DEFTERIOS: Welcome back.

Tonight, meet the man whose fans include Lady Gaga and Katy Perry. Self- taught designer, Manish Arora, is big news on the catwalks right across Europe. Now, he tells us he wants to be India's most fashion forward global brand.

(BEGIN VIDEO CLIP)

MANISH ARORA, FASHION DESIGNER: Fashion is, at this point -- but I think it's going to become more exciting. People are going to take more risks. I -- I hope. I want everybody to have their own personality when they wear clothes. What is happening in the last 10 years was that if you look at people, they pretty much look almost the same. I think what they need to do is people need to bring -- bring out their own personality with their clothes. And that's what I -- I think should come back in fashion. And I -- I guess that's what I'm here to do.

Unconventional is good, that's the way it is. But, yes, I like to do clothes which I think as are straight from what I do from my heart. And I do that as in not keeping in mind any other influences but what I believe in upon collection.

So I guess that's why people call it unconventional. But I would say they're rather honest than unconventional.

I'm the first Indian designer who is showing internationally on a regular basis. And I have done about, I think, nine shows now, I believe -- I have lost count -- in Paris.

In a moment very comfortable with colors because, again, I'm an Indian and for us, being in India, it's very easy to get used to colors.

When I started using colors, I realized that the way I used colors, really, nobody else does. And I didn't really realize when I was doing it, I just did -- did what felt right. And over a period of time, I decided that -- and which we believe in Maot (ph) -- because the brand is about color, yes. It's also about happiness. And getting inspired is never a problem with me. I could be inspired by walking on the street. It's always the execution of inspiration to actual clothing is what is tough. Inspiration is easy.

Trying to sell outside India was always the plan. In my case, I really did -- as I was the first one, so there was nobody to take as an example. So, of course, I did everything on my own. I learned on my own. And I must say, I made a lot of mistakes.

So there was this disadvantage of doing it on your own for the first time. But at the same time, it was a great experience because I was learning while I was doing.

You can keep working and there are still more goals to be achieved. And every year there is -- there's more things to be achieved.

So I don't think I can call myself successful for sure. But besides that, yes, I am working toward making myself into a first Indian global brand.

The woman who wears my clothes is a woman who knows what she is and she's confident. And she is not scared of standing out in a crowd. And she does have a sense of humor, for sure.

It's not a particular person I have in my mind, but it's -- it's any woman who is strong as an individual and confident of herself is the kind of woman I'm making clothes for.

(END VIDEO CLIP)

DEFTERIOS: His colors in the backdrop. Breaking the Mold there.

From storms to extreme heat, it is, definitely, right now, summertime in some parts of the world.

Let's get the details from the International Weather Center and check in with Guillermo Arduino -- good evening, Guillermo.

GUILLERMO ARDUINO, CNN METEOROLOGIST: Hey, John.

You know, it's in Europe. It's in the United States. It's in Canada. It's in parts of Asia. But I would say that the severest of the storms are in Europe right now. We're focusing on what's going on in Moncongladish.

No, what am I saying?

Munchengladbach and in Frankfurt. Frankfurt because the -- the new football game started. And we see storms going through the south of Frankfurt. So it's not that bad. But the weather is not that awesome as we speak.

And that's the area where we see the severe weather, because France is looking OK.

Switzerland, look at here. Switzerland and also near Munich here in the southern parts of Germany and into Western Austria, as well. We have severe storms popping up as we speak.

So we have seen, actually, winds in excess of 100 kilometers per hour. We have seen hail bigger than five centimeters. And, again, in France, in the -- on the other side, we have seen, also, winds around 100 kilometers per hour.

Temperatures are going down in that area. And some are saying, hey, listen, Germany doesn't feel like summer right now -- for the time being. It's going to change.

And also here in the south, in Italy, the Adriatic Sea and also in the Balkan Peninsula, extremely hot for tomorrow. So you're going to notice that. so one more day of cooler conditions for Germany. But with this storm going through in here from France into Germany, as we are seeing it right now, moving into Poland, we're going to see not only the bad weather, but also, guess what?

The delays at airports. I'm looking at private flight radar 24. It looks fine. So you see plenty of planes all over, especially in the very busy airports in Amsterdam, in Frankfurt and Paris and London. So things appear to be OK so far. We'll check out tomorrow what the situation is, because Amsterdam is going to see some winds. And especially in the evening hours, we'll see some delays probably associated with this.

These are weather-induced delays. They -- we do not take into account volume when we forecast these cities. We're talking about strictly weather and its relationship with flight delays.

But Barcelona fine. Berlin, despite the storms and the bad weather, it's going to be fine. Vienna with some rainy conditions. And Copenhagen, maybe some delays there with all this area of instability. It's all in the same area, you see.

And we notice that in the forecast that we're seeing, it's going to feel a little bit cooler for the Low Countries and also for Germany and especially as we move into Switzerland, as well.

Look at the east -- 29 in Bucharest, 29 in Istanbul, 32 in Athens and then 21 in Paris. Madrid, always there, you know, it doesn't change, it's warm.

But the long-term trend is cooler than normal -- so, John, still people in Spain have a little bit of some relief and high expectations that things are going to change.

DEFTERIOS: We'd like some form of relief from the gray skies here.

But thanks a lot for the forecast.

Guillermo Arduino at the CNN International Weather Center.

Well, he closed a newspaper, flew to the U.K., but Rupert Murdoch still couldn't save his BSkyB deal. We'll ask what lies ahead for the News Corp empire just ahead on QUEST MEANS BUSINESS.

(COMMERCIAL BREAK)

DEFTERIOS: Britain's phone hacking scandal only caught fire with the case of one British school girl. It ended up costing Rupert Murdoch the centerpiece of his company's global strategy.

It's been a heck of a 10 days period for Rupert Murdoch. He tried everything to get over here and -- and save the deal.

Can you take us through what happens next -- Jim Boulden?

JIM BOULDEN, CNN CORRESPONDENT: Well, let's look at what happened and remind people of the last 10 days.

You know, two weeks ago, I think most people would have bet on Rupert Murdoch getting full control of BSkyB here and its 10 million plus customers. Remember, BSkyB, of course, is a major cash cow and it's growing fast -- $1.2 billion of operating profit in the first three quarters of the current financial year. That's up 24 percent. And already $7.7 billion of revenue in that same period. That's up 14 percent.

And News Corp itself gained $108 million from its 39 percent stake of BSkyB in the last quarter of the current fiscal year.

Now, of course, the offer to buy all of BSkyB collapsed quickly. Let's look back on 10 days that shook an empire.

(BEGIN VIDEOTAPE)

BOULDEN (voice-over): It all began on Monday, July 4th, when British newspaper, "The Guardian," alleged that the "News of the World" newspaper hacked into the voice-mail of a dead teenager, Milly Dowler, back in 2002 and listened to the messages left on her phone and deleted some to make space for new messages.

A day later, more revelations began to surface, with allegations that payments were made to police for information.

Soon, advertisers such as Ford, Renault and Virgin Holidays, among others, began to boycott the newspaper.

By Wednesday, politicians were chiming in.

DAVID CAMERON, BRITAIN PRIME MINISTER: It's quite disgraceful. That is why it's important there is a full police investigation, with all the powers that they need.

BOULDEN: Then, as Britain prepared to mark the anniversary of the London terror attacks, new accusation that the "News of the World" had hacked into the phones of people who died on 07/07. That same day, Rupert Murdoch's News International announced it would close down the "News of the World," with that Sunday's edition being its last.

DAVID WOODING, FORMER EDITOR, THE "NEWS OF THE WORLD": I can only assume he feels that the brand has been so badly damaged, that the best thing to do is a scorched earth policy and get rid of it. But it's one hell of a decision.

BOULDEN: On Sunday, July 10th, Rupert Murdoch flies into London for an emergency meeting. On that day, the "News of the World" published its last ever issue.

Murdoch had yet to give into calls for him to withdraw his 2010 bid to take full control of the UK's only satellite broadcaster, BSkyB.

PHILIP STEPHENS, "FINANCIAL TIMES": I don't think that there are any circumstances that David Cameron's government can knock this merger through now. Imagine the headlines the next morning: "Cameron Bows to Murdoch."

BOULDEN: As shares in parent company, News Corp, continued to fall in New York, Murdoch announced an audacious plan to buy back News Corp shares worth $5 billion.

But under pressure from politicians and faced with an escalating scandal, on Wednesday afternoon, Rupert Murdoch caves in and withdraws his bid for BSkyB -- for now.

(END VIDEO TAPE)

BOULDEN: So what's next?

Don't forget, he still owns 39 percent of BSkyB. And he intends to hold onto that. And that deal could be resurrected if a rival bidder were to emerge.

Now, there's still speculation that he could pull out of the remaining three newspapers here altogether. That's News International. And next week, parliament has invited him and his son to -- to a committee that is dealing with all this.

The question is, will he show up at parliament to testify?

It will be very intriguing if he does -- John.

DEFTERIOS: That's the big mystery. Of course, I don't think we've heard the last of it.

BOULDEN: Nope.

DEFTERIOS: Thanks very much.

Jim Boulden tonight on the -- the 10 days that were, regarding News Corp and BSkyB.

Well, deals are made and broken and sometimes you just basically get lucky. EuroMillions is the lottery played right across Western Europe. And last night, the jackpot was up to $257,836,000,000 and a little bit of change. I've got to point out that the winnings aren't taxed in the U.K. and so it's all yours to keep. While there is a winner out there, no one has come forward, but we know it's someone or some consortium here in the United Kingdom.

But with so many government assets going up for sale to help pay for debt in Europe, we wondered, what could you buy with all these euro millions?

Well, Greece is out to try to raise some money, of course. So if you wanted to buy a piece of land on Mikonos, we checked what you can do with that. With a mere $9 million, you could buy a private, 1,000 plus acre Greek island plot. Not only would you get a beautiful spot, you'd also be helping the -- the Greece a helping hand to pay back some $454 billion of debt.

Also in Greece, now the Chinese leased full control over the container terminals at Greece's largest port of Piraeus. At that rate they've paid, you could lease it for one year at $142 million.

And if you wanted to buy a stake in a Spanish airport operator, Aeropuertos Espanoles, you could buy a 1 percent stake there, as well -- $229 million.

We wanted to see what you could do to help those in most need and what lottery winner wouldn't want to invest in the lotto itself?

Spain hopes you would do so. You can buy its 1 percent stake there for $281 million.

We do love the lottery numbers, overall.

And that's all for QUEST MEANS BUSINESS for this evening.

I'm sitting in for Richard.

I'm John Defterios.

We'll see you tomorrow night.

"PIERS MORGAN TONIGHT" is just ahead, following a look at today's headlines.